The due date for comment letters on the proposed Volcker Rule has now passed. The comment letters are interesting for a variety of reasons. (I had the benefit of seeing draft versions of several of the comment letters, and I’ll just say that I’m amazed at the level of convergence they were able to achieve between the industry letters — both substantively and stylistically.)

Instead of trying to write a single, lengthy post with all my analysis of the competing arguments — an undertaking which I simply don’t have the time to complete — I’m going to sort of provide analysis as I go.

In my first post, I’m going to do something which, in my professional capacity, I never get to do: make predictions. I do this without any inside knowledge or the regulators’ thinking, and with full awareness that it’s far too early to know exactly what the regulators will do. But if you don’t make firm predictions, then how are you supposed to say “I told you so” when you end up being right? With that in mind, here’s what I think will ultimately happen to a few of the key portions of the Volcker Rule:

1. The requirement that market-making activities be “related to clear, demonstrable trading interest of clients” will be completely scrapped. The industry will win this one, and for good reason. The “clear, demonstrable trading interest” standard is simply inconsistent with the statutory text, which permits market-making activities that “are designed not to exceed the reasonably expected near term demands of clients.” Client demand can be “reasonably expected” well before the demand is “clear” and “demonstrable.” The statute permits market-making desks to trade in anticipation of “reasonably expected” near-term client demand, so applying a “clear, demonstrable trading interest” standard would be plainly inconsistent with the statute.

To be honest, I don’t think the regulators ever truly intended to apply this standard. The language about market-making activities being “related to clear, demonstrable trading interest of clients” was included in the criterion for bona fide market making, and NOT in the criterion for “reasonably expected near-term demands of clients,” which was far broader. It’s probably a fair bet that different people wrote those two sections, and they were never properly reconciled before the regulators published the proposed rule. However, I also think that the criterion for “reasonably expected near-term demands of clients” will be broadened as well. While that criterion is broader than the “clear, demonstrable trading interest” standard, there’s still a reasonably strong argument to be made that the language in that criterion is too narrow, and doesn’t reflect congressional intent.

2. Regulators will keep the market-making exemption in the proposed rule, but will add a broader “alternative” market-making exemption that relies more heavily on trading metrics to identify prohibited prop trading. Admittedly, this one is a longshot. The industry wants the regulators to replace their current market-making exemption with a much broader exemption, described in the main SIFMA/Clearing House letter:

“We believe a business should be viewed as customer-focused, and therefore engaged in market making, to the extent it is oriented to meeting customer demand throughout market cycles. This can be evidenced by, among other activity, a focus on offering execution to customers, building relationships with customers and providing sales coverage, providing research to customers and participating in the interdealer market in order to serve customer demand.”

Now, this is clearly way too broad. But it does have the benefit (and, from the regulators’ perspective, the attraction) of being simple and inclusive enough to serve as a uniform standard of market-making across all asset classes. If the regulators press on with their current definition of market-making, which contemplates different standards for each different asset class, then the regulators will be drawn into endless battles over what constitutes permitted market-making in every single asset class and market. That’s a daunting task, and I can’t imagine that the regulators are looking forward to writing 50 different, customized definitions of permitted market-making. I’m sure a simple, uniform definition of market-making for all asset classes will look pretty appealing.

However, because the definition of market-making that SIFMA et al. propose is clearly far too broad (sorry guys, but “providing research to customers” ≠ market-making), the regulators will still need some other, non-definitional way to identify prohibited prop trades. And that’s where the trading metrics come in. The proposed rule already identifies several quantitative metrics that can be used to reliably distinguish between market-making and prop trading, and can also be used across the different asset classes.

I think the bargain that the regulators will end up striking here is to add a broader, uniform market-making exemption that relies heavily on quantitative metrics as an alternative to the market-making exemption in the proposed rule. This alternative market-making exemption would obviously have to be narrower than the definition that SIFMA et al. propose, but would still be broad enough to encompass all legitimate market-making across different asset classes.

3. The “trading account” exemptions will stand. The proposed rule excludes repos, securities lending, and positions taken for bona fide liquidity management from the crucial definition of “trading account” — which effectively means that those positions are exempt from the Volcker Rule’s prop trading ban. While Merkley and Levin (amusingly) tried to argue in their comment letter that there is “no statutory basis” for these exclusions, they failed to offer any, you know, actual evidence for their claims. That’s usually fatal to an attempted legal argument. The group “Occupy the SEC”1 even tried to describe various scenarios in which banks could exploit the “trading account” exemptions to put on prop trades, but their examples tended to be inaccurate (in that they would not have legitimately circumvented the prop trading ban), or ultimately irrelevant.

At best, I think the repo and securities lending exemptions might be slightly revised to include an explicit “anti-evasion” clause. But past that, I think all three “trading account” exemptions will stand.

4. The regulators will issue a re-proposed Volcker Rule rather than a final rule. I think the changes will ultimately be too significant to go straight to a final rule, and that regulators will want another notice-and-comment period to get feedback on any changes.

****

1 While “Occupy the SEC” should certainly be commended for engaging in the rulemaking process (which is where all the real action is), and for engaging in a substantive manner, I don’t think their Volcker Rule comment letter was terribly persuasive on any major point, and I don’t think it will ultimately result in many (or any) substantive changes to the final rule. Now, a lot of the letter’s problems were the result of this clearly being the authors’ first time writing a comment letter to banking regulators. So allow me to offer some constructive criticism (since I imagine there will be another notice-and-comment period for the Volcker Rule): For one thing, the letter contained far too many sweeping, conclusory statements, for instance about what did and did not contribute to the financial crisis, and these sweeping statements too often served as the sole basis for the group’s desired change. Regulators are not responsive to those kinds of arguments, to say the least. (In general, “a guy I read on Huffington Post said X contributed to the financial crisis” is not a winning argument at this level.)

Occupy the SEC’s letter also spent far too much time making tangential arguments that were often based on a simple misunderstanding of the proposed rule, which is a great way to kill a letter’s credibility and undermine its more legitimate arguments. Lehman’s use of Repo 105 was a scandal, but not one that was relevant to the proposed Volcker Rule. It’s absolutely imperative that you pick your battles in these comment letters — focus on the truly meaningful debates, and emphasize your strongest arguments. Also, your audience is the regulators, not other activists, so tone down the self-righteousness. Big-time. Regulators are professional civil servants, so they’re hardly responsive to letters that lecture them about their duty to the public.

Or the same lobbying firm. May have been different blokes with Offices down the hall from each other:) Don't worry though, if you really want to see a country utterly and completely in the pocket of its financial sector, just visit the UK.

Or the exact same Buy RS Gold lobbying corporation. May have been distinct fellows together with Places of work about the hallway coming from the other person:) Don't worry even though, should you genuinely wish to experience a region WOW Gold utterly in addition to fully in the pants pocket of the company's financial field, merely go to UK.

OBDii scan tools are offered for use by any car owner and are available in a wide range of value and function. Expert mechanics generally have access to more sophisticated readers. No matter the type of code reader you may have the way it is actually utilized is fairly a great deal the exact same.

The ordinary bat that flies around at night, who is a remarkable nim in the air, cannot take off from a level place aion gold, if it is placed on the floor or flat ground, all it can do is to shuffle about helplessly and aion gold, no doubt, painfully, until it reaches some slight elevation from which it can throw itself into the air. Then, at once, it takes off like a flash aion gold.

Diablo 3 Gold Essential Hit possibility Unity ring at times is much better compared to triple crits rings. Unity ring is our basic decision. With the damage against elites would increase the worth. Diablo3bay I choose The Wailing Host Ring for the other ring with damage against elite and maximum damage. It is genuinely low-cost to get both the rings with only 550,000 Gold. www.diablo3bay.com

Microsoft Project 2010 Download includes a timeline view that is automatically displayed above other views, showing a concise overview of the entire schedule. You can add tasks to the timeline and even print it for an attractive summary report of the entire project. Or you can paste it into an e-mail for an instant report with no fuss.Microsoft Visio 2010 Download helps you make diagrams look attractive with a wide range of formatting tools and design options, including modern shapes and visuals, a rich gallery of themes, and Live Preview.Adobe Acrobat 9 Pro Download includes Adobe LiveCycle Designer ES software for advanced form creation.

the same lobbying company. May have been different guys with Workplaces down the area from each other:) Don't fear though, if you really want to see a nation absolutely and absolutely in the wallet of its economical industry, just check out the UK.cheap runescape goldBillig WOW GoldBuy Blade & Soul Gold

This is a smart blog. I mean it. You have so much knowledge about this issue, and so much passion. You also know how to make people rally behind it, obviously from the responses. Youve got a design here thats not too flashy, but makes a statement as big as what youre saying. Great job, indeed. SbobetSbobet Casino

I love read, this is an excellent articleYou've made several excellent points there. My high quality cosplay costumes spouse and i checked online to find out more in regards to the problem and discovered most individuals should go as well as your views on this site.

You may have some understanding of the direction to go. Tweet them, pin them, post them... may often be among a number your solutions. But, exactly what combination with content is advisable to enhance your tools?officialsignatureproducts.net

Thats a good' article,i usually amazed with' this thing, i asked myself about this opinion, I wish You'll a better articles that can make another people live..don't make the article feel rigit and isn't interesting and poor,i like to read this' article and ithink this is "good".thank you' m'y brother...........

Hello I am so delighted I located your blog, I really located you by mistake, while I was watching on google for something else, Anyways I am here now and could just like to say thank for a tremendous post and a all round entertaining website.Agen Bola Please do keep up the great work.Agen bola terpercaya

I may not have been looking for this information, but i can say that your method of communication is superb.You have ensured that your audience have all the information you need them to have, and without a doubt this is a blog to refer to people looking for the kind of data you have shared. Beautiful Office & Home Mirrors Good work.

Your article is awesome! How long does it take to complete this article? I have read through other blogs, but they are cumbersome and confusing. I hope you continue to have such quality articles to share with everyone! I believe there will be many people who share my views when they read this article from you!vex 3

Thank for information visit top most articles list for Get Free Best Quotes, Compare to save money and time, household, car and office Shifting Services.http://www.awaypackersmovers.in/packers-and-movers-bangalore.htmlhttp://www.awaypackersmovers.in/packers-and-movers-pune.htmlhttp://www.awaypackersmovers.in/packers-and-movers-mumbai.htmlhttp://www.awaypackersmovers.in/packers-and-movers-hyderabad.htmlhttp://www.awaypackersmovers.in/packers-and-movers-gurgaon.htmlhttp://www.awaypackersmovers.in/packers-and-movers-chennai.htmlhttp://www.awaypackersmovers.in/packers-and-movers-delhi.html

There are anything’s packing and goods better shifting services in Gurgaon, No big names with but, fame gained almost offering relocation enlisted on our website (Foogle Packers) and on top services of the entire growth keep dealing with Away experts trust upon of budget reasonable while assist a car and motor vehicles or installed from one location tracking with their products and also give for help to wonderful assist a decant of best packer and mover in Pune as well as process companies.

Manes workers are for factor culpability towards benefit all around the ultimate involving creating once transfer benefit all around improving from get laid items well informed duties all over time. Therefor needs improving east blushing in addition functionality if you have to whereabouts the tough to only safely and care of you valuables to extra length commonly generally is an excellent a technique of best quality for an entire to take a tasking in Mumbai.

Deadly traps and many values waiting for you in Super Mario Star Scramble 3 at friv 4 school. Are you ready to explore them? Your mission in the game is to pass through all traps and obstacles appearing along the way so that you can collect three stars to unlock three doors at each level. Remember that there are many values which are hidden in bright yellow blocks such as life mushroom, coin, fire flower and etc. Therefore, you need to interact with these blocks to collect them so that there are many chances for you to win at school friv. Jumping exactly and using weapons in time are key factors to determine that you can overcome all levels of the game or not. Try your best to complete your adventure! Good luck! You also can play some related games such as......at friv game. How to play at friv best Games? Use the arrow keys to move your character and the space bar or Z key to help him jump in some necessary cases. Press the X key to use the fireball to shoot down deadly creatures along the way.

About Me

I'm a finance lawyer in New York. I used to focus on derivatives and structured finance (you know, back when there was a structured finance market). I spent the majority of my career at one of the major investment banks. My background is in economics and, unfortunately, politics.

Subscribe - RSS

Subscribe via email

Disclaimer

This site is intended for educational purposes only. The content on this site DOES NOT constitute, nor should it be construed as, specific legal advice. The opinions expressed on this site are the author's personal views, and may not represent the opinions of the author's employer(s), past or present. Your use of this site does not form the basis for an attorney-client relationship. Sending the author an email does not create an attorney-client relationship.

You should seek professional legal counsel authorized to practice law in your jurisdiction before acting on any information contained on this site. I expressly disclaim any and all liability of any kind or nature with respect to any act or omission based wholly or in part in reliance on anything contained on this site.